Is there an echo here? I said yesterday "the stock market is getting ugly" but it is a repeat today with even more damage than yesterday. We can go through the numbers again but let's just say it is ugly-ugly, as in duckling. The Dow 30 and NASDAQ Composite hit a 5 ½ year low today while the S&P 500 hit an 11½ year low today. Stocks had a really nice drop and BIG pop that gave some stocks that I was trading intraday up to 16.3% rebounds off the low (BIDU) and even FSLR had a 11.6% bounce along with GS at 17.7%.

What is causing all the selling? Well, at least five factors that I can see is going on. The market is adjusting to the forecast of a deep recession, the proposed tax increases discussed by the new President-elect Obama, credit squeeze, raising unemployment, oil prices still dropping, the American auto makers facing bankruptcy, general fear and insecurity of the consumer, housing prices continuing downward and supply still increasing and continued selling in the stock market causes more selling. Hmmm, that's eight.

The automakers problems won't be resolved with any bill in the next several weeks so continued low prices in those stocks are likely. GM dropped to a low of $1.70 and rebounded to $4.00 within 2 hours. It is speculative whether Congress bails the US automakers out but since the Democrats are in control, it is likely they throw good money after bad.

When we are in this situation as we have in four important times in the last two months, it is best to see what some of the indicators are saying.

1. The VIX hit 81.48 today as a high. Look at the VIX vs. the S&P 500 comparison on the video.

2. Bonds have had a parabolic run the last week or so and was up 3.65 points today alone on US Treasury bonds (December expiration). Look at this chart. The etf that shows a buying opportunity is TBT, Proshares Ultrashort 20 year Treasuries. This is an assumption that the inverse, TLT, will correct from this level, which is an excellent assumption.

3. Many stocks have parabolic curves pointing downwards with increasing volume and the indices are starting to look the same too.

4. Only 4.8% of stocks are above the 40 day moving average and that number has been dropping but we saw a low of under 2% on October 10th. This is only a lightly weighted indicator.

5. S&P 500 Oscillator is -13.9.

6. The Put/Call Ratio is 1.43 yesterday with some easing at 1.38 today, one of the highest in 2008, even higher than any October 2008 readings.

We are setting up for another countertrend rally which means a bull run within a long term bear market. The last rally we went long was the October 28th through the November 4th top and then short for a couple of days but it has been heavy selling since that point. We want to look for signs of a climactic sell-off with very high volume in individual stocks and indices. We want to see those bids continue to drop like we saw today. Stock prices really don't make sense at this level because any metric that is used to evaluate price is irrelevant. The market is irrational despair at this point.

The S&P Futures are up substantially tonight and the Asian markets are turning positive so it is possible the market opens up but I am waiting for some sort of sell-off before entering long positions either on an intraday or an intermediate long positions.

It is time to go to your highest quality stock list or your own favorites to buy long. I'll stick my neck out and say that tomorrow is probably the right day to start building long positions with no leverage or heavily weighted positions in sectors or in one stock. Tomorrow should be an outstanding opportunity for intraday trades on the long side and if the market drops early in the session, the bounce will even be more powerful. It is very likely we hit a multi-day bottom for an excellent opportunity for swing trades long.

The type of trading to look for tomorrow is frantic selling at first, panic selling actually followed by really sharp rises in the 3 min intraday charts with high volume. The buying that could occur will bring stocks up much further than normal because we will have a combination of buy programs going long, short covering from big hedge funds that specialize in short selling, mutual funds using cash to go long and then some investors getting on the bandwagon. The retail investors usually are the last to be convinced before they jump in long so they may not come in until Monday or Tuesday. All will not be well just because we have another 3-6 day rally. It is likely we see the same trading action in the stock market as we saw on the November 4th top, followed by more selling. If the bottom holds on the next pullback, it is conceivable that tomorrow's bottom (or even today's bottom) could be good for months to come but I said that about the October 10th low too.

The VIX peaked at 81.48 today and is on a steep climb. We would prefer a sharp vertical spike in the VIX reading. SKF, the Ultrashort Financials spiked and has formed a nice bullshort chart pattern but with only slightly higher trading volume. This could go higher tomorrow.

Oil prices dropped 7.8% today to a lower close at $49.65 per barrel. It is a strange time in history where oil goes down and the market goes down with it. For most of the last 20+ years, when oil went up stocks used to go down.

Stocks to consider buying long for intraday and/or intermediate long positions tomorrow:

*Note: Insurance companies are now asking the Government for bailout money.

Stay away from housing stocks, we should be seeing some bankruptcies and some are now under $2.

Intermediate Trade Positions: If you have existing positions, be prepared to hold for several months to see substantial gains. If you are looking to buy stocks long for an intermediate position (1 week to several months), tomorrow should be the right day to start opening long positions. Open gradually and no leveraged positions. Give wide stop losses that are about 3-4% below the bottom of the intraday charts tomorrow.

Swing Trades: Get prepared to buy small long positions to hold over the weekend.

Day Traders/Intraday stock ideas: Friday should be an incredibly good day for the drop and pop intraday trading technique. Drop and pop stocks: Many stocks are good candidates for this technique and FSLR, RIMM, IYF, and AAPL are still good stocks for long trades with BRKB as a possible stock to watch for a good bounce. Many stocks will be good for this technique tomorrow and a substantial bounce upward is very probable tomorrow. The ideal scenario is the market heads down another 100-200 points tomorrow and then reverses upward for several hours in which substantial profits can be made on a long intraday trade. But the stock market does not have to drop much at all tomorrow before making a decisive bottom.

Concluding thoughts: We are at a point where it is high probability that we make money by starting to buy stocks LONG TOMORROW. The ideal situation is to see the market open down and move down followed by a sharp decisive and powerful rally to the close. At least we should have a big one day rally and probably it occurs tomorrow and carries through to Monday.

Intraday trading technique trades still rule in profits with the highest probability for the most profit in stock trades. If your desire is to not trade frequently and you are looking for stocks to buy and hold for several months, which looks like a good time to buy long is Friday November 21, 2008.

Best odds only, be decisive, aggressive, mentally flexible, stay in position size, don't overtrade and wait a little longer to buy and wait a little longer to sell. You will find that will make you more money on your trades.

Don't trade unless the setup is there for you, then use the charts to tell you when the odds are heavily in your favor. I recommend wide stop losses when using this technique otherwise you get stopped out frequently which is expensive, frustrating and distracts you from the bigger picture of making a successful trade. Don't force anything to work for you tomorrow, let the setups develop and then take advantage of that. Be patient the next couple of days. Stay in position sizes without letting any intraday trade be more than 15-20% of your total account value. As you build your account, your position size percentage should get smaller and smaller to lower your risk.

Mitch King is the founder of TradeStocksAmerica.com. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Mitch King. Investment recommendations may change without notice and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. Mitch King and/or the staff at TradeStocksAmerica.com may or may not have investments in any stocks cited above before or after this newsletter is prepared. Opinions expressed in these reports may change without prior notice.

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